Sunday, March 01, 2009

Gary Makes a Good Point

A comment from ‘Gary’, with whom I have been debating The Metaphor of the ‘invisible hand’, as Adam Smith used it and as it is used today by modern economists, set me thinking after I had responded (see below to my post "A Reply to a Commentator" and the two comments appended therein.

This is a quote from Gary’s comment:

One of my disagreements is in the use of the term "invisible hand". In reading your paper (and the examples in this post) it's hard to ignore the fact that none of the references you cite used the term "invisible hand" (The Metaphor if you prefer) the way Adam Smith used it - in reference to economics.

Most use the term in reference to God, Providence, or other supernatural force. A few use it in reference to natural forces such as wind; there are a few military references; but none use it in reference to economic principles.

It may be a mistake to say the Adam Smith "coined" the term "invisible hand", but after reading your paper and other sources over the past few days, I believe it's still accurate to say he was the first to use The Metaphor in the context of economic principles.

The closest thing of which I'm aware previous to Adam Smith is "The Grumbling Hive: Or Knaves Turned Honest" by Bernard Mandeville"

That poem effectively describes what the "invisible hand" means today, even though Mandeville never used the term

My initial response was as follows:

On Smith's use of The Metaphor, I am not sure I agree completely with you.

Smith did not write about 'economic principles' in his use of the invisible hand. His first use was about pagan religion (History of Astronomy); his second was about feudal landlords avoiding his peasants and retainers starving to death, dsespite their psychological delusions of 'beauty' (Moral Sentiments); and the third was about risk-aversion - another pyschological impulse (Wealth Of Nations. All covered by prior use by other authors.

When he did write about how markets work, Book I and II, and how commercial society evolved (Book III) he did not use The Metaphor at all.

The users of The Metaphor in economics were the post-1950s modern economists, not Smith.

Smith is often confused with Mandeville - selfishness and greed etc

I thought about this exchange over-night (I am like that) and think I should record that in all the years in which I have been debating The Metaphor on Lost Legacy (since 2005) and in seminars, correspondence, and from reading articles and books from professional economists and academics from other disciplines, I cannot recall an occasion in which anybody before Gary who has raised such a sensible objection to the case that I expound about Smith’s use of The Metaphor.

This is quite striking. It’s not striking because Gary made a knock-out blow to my case – my response suggests why I do not accept his point - but he did make a significant point that I had not thought of before.

The Metaphor, as Adam Smith used it in the three occasions he did so - credulous beliefs of ‘savages’ and pagans (History of Astronomy), consequences of the psychological ‘deception’ of the ‘man of enterprise’ (Moral Sentiments) and the psychology of the risk-avoidance of the wholesale merchant (Wealth Of Nations) – was transposed by post-1950s modern economists, such as Samuelson, Friedman, and their graduate classes of US and UK economists, into a supposed invisible and mystical force within markets and without content or any identifiable mathematical term in their modern equations, which supposedly are representative of how markets work.

I have stressed how the popular literary Metaphor was used by Adam Smith as a ‘figure of which can have ‘beauty’ if it ‘is so adapted that it gives due strength of expression to the object to be described and at the same time does this in a more striking and interesting manner’. As such, The Metaphor is representative; it does not have substance; it is not identical to its object, and neither is it a ‘concept’, a ‘theory’ or a ‘paradigm’ (see my 2008 paper, “Adam Smith and the Invisible hand: from metaphor to myth”, downloadable HERE:

Adam Smith used The Metaphor to give ‘due strength of expression’ in ‘a more striking and interesting manner’ of the ‘beauty’ of the consequences of rich feudal landlords who were deceived by the flattery of their possessions into providing subsistence to the poor peasants who worked for them, and likewise to the consequences of the risk-avoidance of some merchants who invested their capital locally. That was Smith’s contribution, typically keeping his feet on the ground, so to speak, because he explains what goes on before adding a metaphor.

However, and this is the ultimate significance of Gary’s intervention in our debate, the post-1950s generations of economists who transposed The Metaphor from Smith’s psychological drivers of landlords and merchants, into an unexplained ‘theory’, ‘concept’, even ‘paradigm’, of how markets work by ascription, devoid of content or explanation, and in doing so they added a mystical layer of assertion over what the science of economics is supposed to explain.

Where Adam Smith, and others who came afterwards, diligently explained, without notions of invisible 'hands’ or ‘beings’, more associated with ‘pusillanimous superstition’ than with scientific analysis, the post-1950s generations of supposedly modern, scientific economists, with batteries of mathematical techniques at their disposal, did, was and is to take their science back to rest on a primitive mumbo jumbo, which would not be out of place among the credulous generations of the Middle Ages and those who lived even earlier.

And they have done this all in the name of Adam Smith in a sorry attempt to give their ideology an authority it does not deserve, under the driving force of that dangerous notion that there is an invisible force (some credit it to God) at work guiding the self-interests, even selfishness, of entrepreneurs, unbeknown to them, that magically, somehow, turns even the most sordid of actions into social benefits, of which those who suffer, or lose out, or are inconvenienced, some without their limbs, others without the lives of their loved ones, have at least the comfort of being told that public good can come from public bad!

Worse, legislators and those who influence them, buy this crap and are encouraged to give the perpetrators of and the beneficiaries from, this lie in the illusion that it is true because The Metaphor says so.

That is what, no less, is at stake in the, rather lonely, battle to retrieve Adam Smith’s legacy from the epigones.

My thanks to Gary for raising these issues in a coureous ‘more striking and interesting manner’. His passionate advocay of free markets is in good, visible, hands!



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